The Small Business Protections Bill: What it means for your business

Cash flow has been, and continues to be, one of the biggest challenges facing UK businesses. While profits may look healthy on paper, delayed customer payments can quickly create pressure on working capital, restrict growth plans and, in some cases, threaten a business’s survival.

It is therefore welcome news that the government has introduced the Small Business Protections Bill to Parliament, representing what it describes as the most significant crackdown on late payments in more than 25 years.

For many business owners, particularly SMEs, this could be one of the most meaningful pieces of business legislation introduced in recent years.

Why is this change needed?

Late payment remains a significant issue across the UK economy. According to government estimates, late payments cost the economy around £11 billion each year and contribute to the closure of approximately 38 businesses every day.

Many smaller businesses find themselves in a difficult position when dealing with large customers. They are often reluctant to challenge lengthy payment terms or chase overdue invoices too aggressively for fear of damaging an important commercial relationship.

What are the key proposals?

The Bill contains several significant measures designed to improve payment practices across UK supply chains. These include:

A maximum payment term of 60 days for large businesses paying smaller suppliers.

Mandatory late payment interest at 8% above the Bank of England base rate.

Enhanced powers for the Small Business Commissioner to investigate poor payment practices, resolve disputes and impose substantial penalties on persistent offenders.

A ban on retention payments within construction contracts.

If implemented, these measures would create one of the strongest legal frameworks for tackling late payment among G7 nations.

What does this mean for SMEs?

Business owners frequently tell us that one of the most frustrating aspects of running a company is having to spend valuable time chasing money that has already been earned. Time spent following up overdue invoices is time that cannot be spent winning new business, supporting customers or developing the business.

While the legislation will not solve every payment issue overnight, it does represent a significant shift in the balance of power. Larger organisations could face financial consequences for poor payment behaviour, creating a stronger incentive to process supplier invoices promptly.

For businesses supplying larger corporate customers, this may result in:

• Improved working capital
• Reduced borrowing requirements
• Greater confidence when planning investment
• Fewer resources dedicated to credit control
• Enhanced financial stability during periods of growth.

A reminder not to overlook your own processes

Although the reforms are positive, businesses should view them as part of the solution rather than a replacement for strong financial management. Good credit control remains essential.

Businesses should continue to:

• Issue invoices promptly and accurately
• Agree payment terms clearly at the outset
• Monitor debtor balances regularly
• Follow up overdue debts quickly
• Maintain robust cash flow forecasts.

The businesses that perform best typically combine strong internal processes with effective customer relationships. Even with stronger legislation in place, maintaining visibility over expected cash inflows will remain critical.

What should larger businesses consider?

For larger organisations, the proposed reforms are likely to increase scrutiny of payment practices.

Finance teams may need to review supplier payment processes, standard contract terms and approval procedures to ensure compliance with any new requirements. Boards and audit teams will also want to understand how payment performance is being monitored, particularly as the Bill proposes greater transparency around poor payment behaviour.

Businesses that already pay suppliers promptly are unlikely to see significant disruption. However, those relying on extended payment terms as a source of working capital may need to reassess their approach.

Looking ahead

The Bill still needs to progress through Parliament before becoming law, and some details may evolve during the legislative process. However, the direction of travel is clear. The government has made tackling late payment a priority and is seeking to create a culture where paying suppliers on time becomes the norm rather than the exception.

For SMEs, this is a potentially significant development. Stronger protections, greater enforcement powers and increased accountability could help improve cash flow resilience across the small business community.

While we await further details, which we are hoping for in early 2027, now is an excellent time for businesses to review their own payment processes, debtor management procedures and cash flow forecasting. Those with a clear understanding of their working capital position will be best placed to benefit from any improvements these reforms bring.

As always, if you would like to discuss the impact on your business or review your cash flow and working capital strategy, please get in touch with a member of our Business Advisory team.